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Tajikistan’s new tax code almost ready
Simplified code to increase revenues, compliance
By Dilafruz Nabiyeva
DUSHANBE – International financial institutions and Tajik authorities say work on reforming Tajikistan’s 2005 tax code is almost completed, and supporters and opponents are already addressing some of its points.
Tajikistan’s business community appealed to President Emomali Rakhmon in February, expressing displeasure with a tax on mobile communications and internet services. The excise tax, introduced late last year, has been included in the revamped code.
However, mobile communications are taxed in many developed countries, Tax Committee First Deputy Chairman Ayubjon Soliyev said.
“Moreover, telecom operators continue to use the so-called ‘gray traffic,’ and the amount of taxes that have gone unpaid runs in the millions of dollars,” Soliyev said. “For example, over the past three years, more than $10m (47.5m TJS) in (unpaid) taxes has been discovered.”
“Gray traffic” refers to various practices, such as understating the number of subscribers and call volume to evade taxation. Other changes, such as reducing the number of taxes, have received support.
Making tax code transparent
Tajikistan has 21 taxes. Some duplicate each other, and it’s not clear how others are collected.
Tajikistan’s tax code needs to be transparent and simple if the country wants to attract investors and wants local producers to expand their businesses, Jamshed Rakhmonberdiyev, the head of the Somon Capital investment company, said.
“A tax code should not only replenish the national budget but should also encourage domestic producers to expand their businesses,” Rakhmonberdiyev said.
The main objective of the new tax law is to reduce the number and amount of taxes so taxpayers no longer hide their incomes, Tax Committee Deputy Chairman Rustam Jabbarov said.
“Unfortunately, many small and medium-sized businesses keep two sets of books in order to hide their primary revenues … because if they declare their entire incomes and pay all the taxes in full, they would go bankrupt,” Jabbarov said. “We are now interested, most of all, in bringing them out of the shadows, so that they no longer have to conceal their earnings but instead invest them in developing their production capabilities.”
According to some estimates, if a business were to follow all tax laws on all earnings, they would pay up to 87% of their revenues in taxes.
The new tax law is still being developed, he said, and the working group continues to hold meetings.
The group has been working for about a year, and the commission has received more than 2,000 proposals from ministries, government agencies, international organisations, business organisations and associations, all of which it has reviewed, Jabbarov said.
The working version of the new tax code includes fewer types of tax, he said, but core taxes such as the value-added tax (VAT) cannot be reduced because the tax system is the only source of revenue for the country’s budget.
“Moreover, to date, the overall tax rate ... is far lower than rates in other countries,” he said.
Calls for still lower tax rates
Businessmen, however, are hoping base tax rates will diminish.
Konstantin Bondarenko, chairman of the NGO Centre for a Free Market, cited neighbouring countries that have reduced not only the number of taxes, but also VAT and income tax rates.
“In neighbouring Kyrgyzstan, the VAT rate is 12% and income tax is 20%, while here they are 18% and 25%, respectively,” Bondarenko said. “And look how fast small and medium-sized businesses are growing there.”
The country will benefit in a few years if the government reduces the number of taxes and their rates, predicted Nekruy Zabirov, head of the Union of Entrepreneurs.
“If tax cuts are made, in the first two years the republic may lose a substantial portion of its income – a total of 20% – which, of course, will affect social services,” he said. “However, in a couple of years, when the tax code starts to work properly, the effect will be significant.”
The Tax Committee, however, fears a significant loss in operating revenues that would come from reducing tax rates. Therefore, this issue is still under debate.
IMF supports changes
The International Monetary Fund (IMF) has been following the tax code revision process.
In February, at his most recent meeting with Rakhmon, Todd Schneider, head of an IMF mission visiting Tajikistan, said the new tax code, which Tajik officials submitted to the IMF for review, will help develop the business environment in Tajikistan.
The new tax code should be submitted to the government no later than April 1, according to a government decree.